Cutting the Capital Gains Tax Boosts Growth Rate and Jobs

WASHINGTON - Former Massachusetts governor Mitt Romney estimates
the federal tax rate he pays on most of his income is about 15 percent
because it comes from his past investments.

That may sound shockingly low to many middle income Americans who
pay tax rates of 25 percent to 28 percent or higher, but the 15
percent is in the federal tax code for a good reason: to encourage
capital investment which is the mother's milk of a growing economy.

Romney, who said he will release his tax returns about April,
pays the same tax rate anyone else does on income from capital gains
from the sale of stocks, bonds, or from dividends and other securities.

While Romney is a millionaire, any American who buys a share of
stock and sells it for a profit, or is paid dividends from that stock
or other investment, or sells a home would would pay the same rate
Romney does.

Investments that pay a return in long term or short term capital
gains or dividends, is not just for the wealthy. Tens of millions of
workers who invest in 401(k), IRA or Roth savings plans, or through
their mutual funds, or stock portfolios, receive the same tax break
and that income is taxed at 15 percent.

If you were to buy stock in Verizon, which is about $39 a share,
it would pay you a yearly dividend of $2. That's an effective yield on
your investment of 5.1 percent -- not bad at a time when most banks
are paying less than 1 percent.

Buy some AT&T stock at $30.38 and it would pay you $1.76 per
share, an annual yield of 5.8 percent. Where can you get that in
today's economy?

But the federal tax on that income would be 15 percent, too.

President Obama, who wants to raise income taxes on big
corporations, small businesses who file as individual taxpayers,
investors and almost anyone who makes big money, thinks the 15 percent
tax is too low.

He's fond of relating billionaire stock investor Warren Buffet's
complaint that his private secretary at Berkshire Hathaway pays a
higher income tax rate than Buffet does. The reason: virtually all of
Buffet's income is from capital gains and other forms of investment,
so he pays 15 percent, too.

You never read in the newspapers that his secretary is also an
investor and income from her investments is also tax at the 15 percent
rate. Earned income is taxed at the regular rates between 10 percent
at the bottom and 35 percent at the top.

For the past four years, Obama has been beating up rich people,
saying they are not "paying their fair share" in income taxes when, in
fact, they pay most of the income taxes that flows into the U.S.
Treasury.

In the political world we live in, this kind of rhetoric is known
as class warfare, pitting one income class against another. It is also
sheer demagoguery.

Obama loves playing this attack game and you can bet he will use
it to the fullest extent against Mitt Romney if he wins the Republican
presidential nomination.

But the history of capital gains taxes in recent decades reveals
that presidents in both parties have cut its tax rate to increase
capital investments in the economy and boost growth.

In 1997, President Clinton signed a Republican tax cut bill that
slashed the capital gains tax rate from 28 percent to 20 percent. His
critics in his party's extreme left wing said it would benefit the
wealthy and the lost tax revenue would drive up the deficit.

On the contrary, Clinton's capital gains tax cut fueled an
investment boom in the technology sector and the rest of the economy,
taxable capital gains nearly doubled over the next three years that
led to a budget surplus. Notably, as a result of an explosion in new
jobs, unemployment fell below 4 percent

Clinton never mentions his capital gains tax cut in his speeches
about his stewardship of the economy, or in his latest book about how
to grow the Obama economy and create jobs.

President Bush, too, cut the capital gains tax in his 2003 tax
reform, reducing it to 15 percent. Between 2002 and 2005, capital
gains reported as income shot up by 154 percent.

Despite all the evidence that a low capital gains tax rate boosts
economic growth and raises tax revenue, Obama is stubbornly sticking
to his failed class warfare economics and wants the capital gains rate
raised to 20 percent or higher.

Newt Gingrich is proposing that the tax on dividends and interest
be eliminated -- a good idea, but its stands no chance of passing
Congress.

Romney is playing it safer. He wants to make the Bush individual
tax cuts permanent, reduce the corporate rate to 25 percent, but
eliminate the capital gains tax for people making less than $200,000 a
year.

Wealthier people in the upper six and seven figure tax brackets
are doing okay in this economy, he says, but those in the middle class
brackets need to be encouraged to save and invest more.

In one stroke of his agenda pen, Romney robs Obama of the issue
he craves most: to attack him as being out of touch with lower income
Americans, favoring the rich over the middle class.

It's going to be politically difficult for the president to say
Romney favors the rich when he calls for cutting taxes on Americans
earning below $200,000, the very middle class income bracket that
Obama says he wants to protect from higher taxes.